Canadians need a federal government that spends less and better, taxes more intelligently, and sets a fiscal course that will avoid tax increases driven by excessive spending and borrowing, according to a new report from the C.D. Howe Institute.
In The Morning After: A Post-Binge Federal Shadow Budget for 2023, authors William B.P. Robson, Don Drummond and Alexandre Laurin argue that the government of Canada should focus on supporting the growth of private and not-for-profit economic activity and does not pass the bill for transfers and services Canadians enjoy today forward to future generations.
“Strengthening long-term growth will require stronger productivity growth and much higher levels of business capital investment,” say Robson, Drummond and Laurin. The Shadow Budget establishes a policy mix that supports work, investment and innovation, with a credible path to budget balance and competitive taxation.
The Shadow Budget generates the budget balances required to return the federal debt-to-GDP ratio to the pre-pandemic rate of 30 percent within 10 years. Shrinking the national debt-to-GDP ratio will be beneficial to future generations of Canadians who will need resources to deal with climate change and the energy transition, subsequent pandemics, and challenges we do not yet foresee.
Canadians who benefitted from the massive pandemic-related federal spending should help pay for it. Higher corporate income taxes would be counterproductive, while higher personal income taxes would drive out the talent and wealth needed to move from recovery to expansion. The Shadow Budget generates new revenues by raising consumption taxes, while putting the breaks on rapidly growing and ineffective government spending.
“Future generations of Canadians will need a federal government with restored capacity to deliver services sustainably,” Robson, Drummond and Laurin state. “The primary focus of the economic program in this Shadow Budget is reducing the pressure of the federal government’s spending and consumption on the rest of the economy,” they explain. “It is critical the government shift toward productivity and growth raising measures while easing pressure on demand.”
William B.P. Robson is Chief Executive Officer, C.D. Howe Institute.
Don Drummond is Stauffer-Dunning Fellow, Queen’s University, and Fellow-in-Residence, C.D. Howe Institute.
Alexandre Laurin is Director of Research at the C.D. Howe Institute.